Growth is Down, Cloudy Days Ahead

Governor-elect Kenny Guinn had not yet started his Christmas shopping when he had announced that without a budget cutback of at least 3.8 percent from the budget adopted in 1997 state government would be coming up $120 million short. What increasingly astonished Nevadans are witnessing—especially in northern Nevada—is a dramatic California/Nevada role reversal. Both population and the economy of California are looking healthy again after some years of relative stagnation, while northern Nevada’s population and economy are doing little more than standing still.

"No-Growthers" Get a Taste of It

Suddenly missing from the political debate are yesterday’s noisy, ardent no-growthers (with the obvious exception of Senator Dina Titus) who are getting a first-hand look at what really happens when population growth all but comes to a halt. One of the problems is that Nevada’s tax structure is unusually regressive, depending on consumer spending and the state’s high sales and excise taxes for state government revenue. The first time a new Nevada resident fills up the tank of his car, pays an insurance premium, seeks a license of some kind or goes shopping he is already beginning to pay his way. Perhaps not surprisingly, in the early 1990’s Nevada’s tax revenue went up even faster than its soaring population. Notwithstanding some inequities, Nevada’s tax structure served the state very well for so long as new residents continued to establish roots here. As of 1998, according to the Tax Foundation, Nevada’s per capita income was $29,000. State and local taxes now consume 12 percent of income or about $3,500. Combine that figure with the federal burden on the average Nevadan and his take-home pay is a paltry $17,000.

But Nevada’s rate of population growth dropped to below five percent last year, and it was in northern Nevada that the most alarming reductions in population growth occurred. Last year’s population growth rates for Reno, Sparks and Washoe County were all below one percent and down in each case by more than 50 percent from the previous year’s population growth. Nearby counties fared only marginally better, but far below the growth rates of over five percent they had enjoyed in recent years. Last year population growth in Douglas, Storey and Lyon counties was 4.6 percent, 3.4 percent and 3.5 percent respectively. The economic impact on the rest of the state should not be underestimated.

Listed below are selected growth rates from July, 1997 to July, 1998 compared to growth rates of the previous year, July 1996 to July, 1997.

Growth Rates by Year

Reno

0.8%

1.8%

165,940

Sparks

0.5%

1.6%

61,660

Carson Co.

2.9%

3.2%

51,860

Douglas Co.

4.6%

5.6%

41,420

Storey Co.

3.4%

6.0%

3,640

Lyon Co.

3.5%

6.0%

31,430

Policy Needs to Be Linked To Reality

Yet as recently as October the Nevada Board of Regents, which had succeeded in getting a 30 percent increase from the 1997 Legislature, announced that it would be seeking an increase of 45 percent more from the 1999 Legislature. Surely reality has not set in with the University advocates.

Compounding the bleak outlook are per capita income figures released a few months ago by the U.S. Department of Commerce and published by the Nevada Policy Research Institute (although overlooked by government officials in Nevada). While Nevadans continued to enjoy the 12th highest per capita income ranking among the 50 states, a second statistic in the same report revealed that Nevada had dropped to 48th highest in annual per capita income growth. With an increase in per capita income of 2.8 percent, scarcely covering inflation, Nevada’s 12th place ranking is destined to drop sharply in the next few years.

The combination of static population growth and dramatically reduced year-to-year per capita income gains can only mean harsh challenges for Nevada’s new governor and for its incoming legislators. Perhaps we can now better understand why so many of us had not yet hung up our Christmas wreaths before Kenny Guinn decided that he had no choice but to draw a line in the sand and bring increased legislative spending to a temporary halt.

Signs of The Times

The closing of two more Reno casinos this fall and the sale of Reno Air to American Airlines serve to underscore the economic challenges the outgoing administration in Carson had been so reluctant to admit. Even factoring Las Vegas into the equation brightens the outlook only marginally. Still enjoying the sort of growth northern Nevada used to enjoy, Las Vegas has nonetheless had to come to grips with the fact that its typical tourist now gambles one to two fewer hours a day than used to be the case, and the city has radically changed its marketing strategy to appeal especially to non-gamblers.

Conclusion

Indeed, the telltale evidence is everywhere; even personal bankruptcies in Nevada soared upward by 18 percent last year. But isn’t it too bad that it took government so long to spot the clouds on the horizon so many businessmen and others began to note a few years ago? While the figures on the preceding table are "educated guesstimates" by the state demographer, he still enjoys an accuracy record the state’s governor, legislators, and economic planners should envy. The avarice of special interests preparing for the next legislative session will surely not be satisfied, given the foresight of our next governor, Mr. Guinn, to prepare them for the worst.

Ralph Heller is Senior Consulting Editor of Nevada Journal and Senior Research Fellow in Economics for Nevada Policy Research Institute. He can be reached at info@npri.org.